Saudi Oil Minister Says Aramco to Keep Spare Capacity in IPO

Khalid Al-Falih

Khalid Al-Falih in Vienna on June 2, 2016.

Photographer: Akos Stiller/Bloomberg
  • Investors must accept kingdom’s policy of idling some fields
  • Aramco will look to invest in oil and gas projects overseas

The initial public offering of the world’s largest oil company will not mean an end to a long-time policy of keeping some of its production capacity idle to cushion any disruption in supply, Saudi Arabia’s energy minister said.

“We can demonstrate to investors that it pays over time to have that spare capacity” at Saudi Arabian Oil Co., Khalid Al-Falih told reporters in a briefing in Vienna on Thursday. “They are going to have to accept it. It’s part of the package of buying into the lowest cost producer.”

The kingdom has a production capacity of 12.5 million barrels a day and it doesn’t need to expand it beyond that level “any time soon,” he said.

Deputy Crown Prince Mohammed bin Salman, the king’s influential son, said in April that the government will sell less than 5 percent of the state producer known as Saudi Aramco. The listing, which Al-Falih said was targeted for 2018, could turn the world’s biggest oil exporter into the largest publicly traded firm with a value in the trillions of dollars.

After the IPO, “domestic prices, production levels and the capacity will be clearly delineated as a government decision and not a corporate decision,” Al-Falih said. The government will continue to own the majority of the company through the Public Investment Fund, and some proceeds from the IPO would also go into the fund, he said.

IPO Options

Saudi Arabia still plans to offer shares in Aramco “at the top, the parent company,” while also studying the possibility of separate or combined IPOs for its joint ventures, Al-Falih said. It’s also considering who would be allowed to buy shares in the company, he said.

There is still a significant amount of work to be done to prepare for the offering, Al-Falih said.

“A lot of our accounting is done on a functional basis. We need to have segmented account on each of our businesses so that the capital market will understand it, and that will take few months,” Al-Falih said. The issue of taxation also needs to be resolved with the Saudi government, he said.

Aramco is currently focusing its investments outside Saudi Arabia on refineries, but after the IPO the company may invest in international oil and natural gas projects, Al-Falih said.

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